Social Media and Reg FD: Can You Use Facebook to Disclose?

In 2000, the Securities and Exchange Commission adopted Regulation Fair Disclosure, which, boiled down, says a company must publicly disclose any information about itself that may cause people to trade its shares. The rule, known as Reg FD, is intended to prevent selective disclosures that favor, say, institutional investors over others.

What if a company, or that company’s chief executive, makes a so-called material disclosure on Facebook? Is that sufficiently public?

The question surfaced Thursday, when the SEC said it may sue Netflix Inc. and CEO Reed Hastings over a post that Mr. Hastings made on Facebook several months ago. Mr. Hastings boasted on his Facebook page — he has more than 245,000 followers — that Netflix exceeded 1 billion hours of video streaming in a month for the first time.

Mr. Hastings has a couple defenses. He has pointed to his vast number of subscribers to his Facebook page, for one thing. Netflix had also disclosed on its blog a month earlier that it was nearing the 1-billion-streaming-hours milestone. Mr. Hastings, who is also on the board of Facebook, has also argued that, at any rate, such information isn’t material.

Let’s assume, as the SEC apparently does, that the disclosure was material. We asked a couple experts whether the SEC has a strong case. . . .